Marks & Spencer warms to cash call for UK store expansion

Marks & Spencer may launch an expansion rights issue to grow the number of stores it has in the UK.

A capital raising is being seen as a possible option to speed up growth, but no decision would be taken until incoming chief executive, Marc Bolland, completes a review of the business.

The Dutchman makes his long-awaited arrival at M&S tomorrow in what is widely considered to be retail's biggest job.

Dannii Minogue in the latest M&S campaign. Bolland's challenge will be to attract younger fashionistas without alienating loyal shoppers

The former Morrison boss faces the challenge of revitalising the chain's clothing and food businesses amid a backdrop of economi c uncertainty and intense competition.

Bolland's first task will be to conduct a review of the business. He needs to grow market share in clothing, fix the food business which has lost customers to upmarket Waitrose, and decide whether to grow internationally.

But the firm is constrained financially, making any ambitious moves difficult.

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It has had to slash the budget for revamping stores and has already earmarked £500m for investment in technology, distribution and storage systems.

If Bolland wanted to go big and extend the number of stores, and expand around the globe, a rights issue is being considered as a more favourable option.

This will surprise the City because the firm has recently poured cold water on such an idea.

As recently as M& S's investor day in October the firm hinted this was unlikely.

But the thinking now is that Bolland will have a short honeymoon period in which to review the business. If at the end of this he is able to put forward a convincing plan that requires investment, this is being seen as the optimal time to tap the market.

One analyst, who did not want to be named, estimated M&S could raise around £400m.

Eithne O'Leary, an analyst at Oriel Securities, said: 'Whilst we do not believe a rights issue is inevitable, should Marc Bolland find a way to re-invigorate the brand more quickly, management and shareholders may see the merits of raising capital next year to allow this to happen.'

While Bolland has been widely credited with turning around Morrison he has no experience as a clothing retailer. His challenge will be to attract young fashionable shoppers without alienating loyal customers.

However current trading appears to be robust and it is understood market share has increased substantially in recent weeks from 10.3pc to close to 11pc.

With the food business, Bolland may seek to grow the 325 Simply Food outlets by adding 40-50 stores. The chain is profitable and has an operating margin in the high single digits.